Please these are my answers to your quiz

1. What do we call the process of turning future cash flows into current cash flows?

Discounting

2 Dollars to be received or paid out through time are different commodities that cannot simply be added together or subtracted from each other. What is this concept describing?

Time value of money

3 Which of the following correctly describes the relationship between the amount of future dollars applying simple interest and the amount of future dollars applying compound interest?

Compound interest = Simple interest + Interest earned over the previous periods

4. An annuity represents a stream of payments that occur at what time each year?

At the end of each period.

5. A bank just launched a new savings account that earns the rate of 6.85% compounded daily. The bank points out that the rate of 6.85% is equivalent to earning 7.09% compounded annually. What label do we give to the 7.09% in this example?

An effective annual interest rate

6. In the context of calculating present values, what is another name for the interest rate?

The discount rate

7. Ray is in a situation where he needs to choose whether to go to graduate school or accept a job at a local bank with $35000 annual salary. Suppose he chooses graduate school. In this case, what do we call the $35,000?

An opportunity cost

8. What is the reverse action of discounting?

compounding

9. What would be found by applying the following formula?

= [FV/PV] to the power of (1/n) - 1

The interest rate

10. This question examines the relationship between the interest rate and the present value. As the interest rate --- the present value ---.

increases; increases

decreases; decreases

11. What is the future value of $5000 in 6 years if it is invested at an interest rate of 6.00%? $ __7092.5956_____________ You should set your calculator for at least four decimal places of accuracy. I'll remind you of this from time to time but this is a working rule throughout the semester. Place your answer in dollars and cents

FVn = Po ( 1+k)^n

$5000(1.06)^6 = $7092.5956

12. Suppose that today you deposit the amount of $4000 for 2 years in a bank. How much would the deposit grow to at the end of year 2 if the interest rate is 8.35%? $ ___4668_______________ You should set your calculator for at least four decimal places of accuracy. I'll remind you of this from time to time but this is a working rule throughout the semester. Place your answer in dollars and cents.

Assumption 1 the bank uses compound interest rate;

Using the compounding formula FVn = Po ( 1+k)^n

$4000(1.0835)^2= $4695.8890

Assumption 2 the banks uses simple interest rates

$4000+ 2*4000(0.0835)=$4668

13. Suppose your retirement goal is to accumulate $150 in 3.5 years. How much do you need to deposit in the bank today to meet your goal if the bank offers an interest rate 7.11%.

$ _117.9468_________________

You should set your calculator for at least four decimal places of accuracy. I'll remind you of this from time to time but this is a working rule throughout the semester.

Place your answer in dollars and cents.

P_o = FV_n = 150/(1.0711)^3.5

(1+ k)ⁿ

=$117.9468

14. Bob deposits the amount of $105 in his bank account today, and plans to deposit the amount of $175 in the same account one year from today, and finally plans to deposit the amount of $250 in the same account two years from now. If the interest rate is 4.75%, how much will Bob have accumulated in his account three years from today? $ __$574.5793__________________ You should set your calculator for at least four decimal places of accuracy. I'll remind you of this from time to time but this is a working rule throughout the semester. Place your answer in dollars and cents.

105(1.0475).9875

(109,9875+175)1.0475=$298.5244

(298.5244+250)1.0475=$574.5793

15. What is the present value of 12 consecutive annual payments of $1000 made at the end of each year and beginning in one year if the interest rate is 8.55%?

$ ______$7325.9616________________

You should set your calculator for at least four decimal places of accuracy. I'll remind you of this from time to time but this is a working rule throughout the semester.

Place your answer in dollars and cents.

1000*[1-1/{1.0855}^12]/0.0855

16. What is the future value of investing $1000 for 10 consecutive years beginning one year from today if the interest rate is 4.00%?

$ ___12006.1071_____________________

You should set your calculator for at least four decimal places of accuracy. I'll remind you of this from time to time but this is a working rule throughout the semester.

Place your answer in dollars and cents.

I assumed $1000 is invested every year for 10 yr

17. The Landstar Development Company is planning to buy land for $1450. What rate of return would the company earn on their investment if they believe that they could sell the land in 5 years from now for $1800?

r .4193____________ Provide your answer in percentage form, meaning that an answer of eight point seven five percent would be entered as 8.75 and not .0875. Do not include a percent sign in your answer.

1450(1+k)^

(1+k)^/1450

1+1.24137931

1+.044193296

.044193296

Rate of return *100%.4193%

18. How long does it take for a deposit of $2134 to triple in value if invested at the interest rate of 5.65%? Answer: ___19.99____________Years Place your answer using two decimal places, meaning years and fractions of a year. In other words, 6.35 means 3 years plus 35% of a year

**

2134(1.0565)^

1.0565^

19. A local bank has two saving options. One offers 6% interest compounded on a daily bases while the other offers 6.5% compounded quarterly. Which saving option would you choose?

B. 6.5% compound quarterly

20. Congratulations. You have just won a sweepstakes prize. The prize allows you to choose the method of payment. Prize A: Receive $10000 today. Prize B: Receive $1000 today, followed by the amount of $1000 received at the end of each year for the next 15 years beginning one year from today. Which alternative you will choose at the interest rate stays at 8%?

	Prize B